January, 2022
Washington — Much has been written and said about the Secretary of Education's existing statutory powers to compromise and modify student loans under 20 U.S.C. 1082. Moving the discussion forward, it is time to consider the duties vested in the Secretary under that provision, and how the powers and duties fit together.
The Secretary, according to the plain language of the law, has the obligation to administer federal student loan programs with sound management and accountability and act as necessary to assure that the purposes of federal student loan programs will be achieved. Note especially the use of the word obligation.
Some economists have written, persuasively, that cancellation of student loan debt in various cases and amounts would result in many economic benefits for the nation. But now comes a new paper that lays out an additional compelling case for the Secretary to act, based on the history of demonstrably bad management of the programs. Put forth by three respected consumer protection organizations, the paper charts a plausible course for the Secretary to fulfill his statutory obligations, which would complement the economic arguments.* Done correctly, these relief measures could equal or exceed several other cancellation proposals.
The suggested course builds on actions the Secretary has already taken to straighten out the Public Service Loan Forgiveness program, which actions have been well received by borrowers and the public. Broad PSLF waivers are based on the conviction that the programs should operate as promoted to, and understood by, borrowers, not as woefully, negligently, and sometimes corruptly administered by lenders and loan servicers. The same rationale, the paper argues, should be applied to all federal student loan programs, not just PSLF. Borrowers across the board are often in trouble through no fault of their own. The paper proposes automatic, retroactive relief based on debt reduction opportunities denied to borrowers, implemented through the Secretary's power to compromise and modify loans. The necessary data to provide the relief, the authors point out, is already available to the Secretary in the NSLDS database.
Last week I participated in a panel on the student debt crisis sponsored by the USC Casden Institute and centered around the film "Scared to Debt." As a way forward, I suggested attention to five words: recognition of the complicity of the Department of Education in amassing $1.8 trillion of student debt; the obligation of the current Secretary to remediate it; making the relief proportionate to the mismanagement; application of the limitation, suspension, and termination powers of the Secretary to slow current and future debt growth; and restoration of bankruptcy protections similar to those with other consumer debt.**
It is regrettable beyond words that a dispute over the powers of the Secretary has become a partisan issue, particularly in the context of the repayment pause due to the Covid pandemic — set to expire in May — and the politics of the November 2022 elections. Instead of arguing over the powers, I believe, it would be in the nation's interest to look foremost at the duties of the Secretary, those he is sworn by oath to uphold, and to see that they are performed. Such action would provide much needed and justifiable relief to millions of borrowers, and get them back into making productive contributions to the nation's economy.
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*The National Consumer Law Center (NCLC), the Student Borrower Protection Center (SBPC), and the Center for Responsible Lending (CRL) focus initially on how a repayment plan known as Income Driven Repayment (IDR) has failed, but the paper moves on to realize that this is only symptomatic of deeper problems, including repayment forbearance abuse of borrowers and even more systemic issues. The paper's conclusions also recommend an earlier work by NCLC and CRL, the Road to Relief.
**Complicity of Department of Education officials is not difficult to demonstrate. For example, many lenders made false claims against the Department, which were paid; the funds soon found their way into new student loan programs, the terms and conditions of which violated consumer protections and left the borrowers deeply in debt; the Department then provided the lenders with reviews to whitewash the activities before they could be uncovered by the Inspector General. Eventually, the IG identified and recommended actions against several lenders, but the Department, with rare exception, did not act on them. Abundant evidence of the complicity exists in the audits of the IG, reports of the Iowa attorney general, conclusions of the Pennsylvania auditor general, litigation discovery, and primary source research published in Dan E. Moldea's Money, Politics, and Corruption in U.S. Higher Education (2020), p. 115ff.
